"The Escalator Theory" - why South Africa's smartest fund selectors are no longer chasing performance

In the first half of 2025, 92% of actively managed funds benchmarked against the S&P South Africa 50 lagged the index. Over the past decade, three out of four active South African funds have underperformed their benchmark, and around 40% of the funds that existed ten years ago no longer survive at all.

For Reyneke, those numbers point to a single uncomfortable truth: the way most South Africans invest is broken.

"Investors spend too much time looking at performance charts and not enough time studying behaviour," he says. "Performance tells you what already happened, while behaviour tells you what could happen next."

That conviction sits at the heart of what Reyneke calls "The Escalator Theory".

The Theory

Picture an escalator at your local shopping centre. Now picture it breaking down. You don't sit on the steps and wait, you walk. You still get to the top - just without the benefit of momentum working in your favour.

That, Reyneke argues, is what disciplined investing should feel like. When the escalator is moving with you, momentum carries you. When it stalls, you still climb. Worst case, you still get there. Best case, you outperform.

The framework rests on a simple observation. At any given point in the market cycle, certain fund managers are demonstrating stronger conviction than others. Not necessarily stronger past performance, but stronger present positioning.

The smartest investors, Reyneke argues, are no longer asking, “Which manager performed best last year?”. They are asking, “Where is disciplined capital quietly moving now?”.

Reading Signals Instead Of Headlines

What separates disciplined investors from reactive ones is what they track. Not just managers' returns, but their conviction.

When the Allan Gray Balanced Fund holds Sasol among its top equity positions, that is information. When the Coronation Balanced Plus Fund maintains Capitec at a meaningful weight within its top holdings, that is information.

The sophisticated investor reads those signals and acts on them. The herd waits for the press release.

"Static thinking doesn't work anymore," Reyneke says. "The market moves too fast. You can't fall in love with one style and ride it forever."

The South African Nuance

South Africa's small, concentrated market presents a peculiarity that smart allocators can use to their advantage.

With a relatively narrow universe of investable shares, top managers overlap significantly on a handful of names - a few large counters appearing, with remarkable consistency, across the country's most respected mandates.

Reyneke argues this overlap should be read as a confirmation signal rather than a constraint. When multiple disciplined managers converge on the same position, conviction is stronger.

"In an SA economic upswing, names like Standard Bank reward investors who are positioned ahead of the cycle," he notes. "Concentration becomes an advantage if you know how to read it."

The Behavioural Cost

It is not just managers underperforming. It is investors underperforming themselves.

Globally, the average equity investor lagged the S&P 500 by more than 8 percentage points in 2024 alone, according to DALBAR's 2025 QAIB report. This is the fourth-largest gap on record, and the 15th consecutive year average investors have trailed the index.

Emotional decisions are expensive, and the cost compounds.

The investors most likely to outperform over the next decade, Reyneke believes, will not be those making the boldest predictions. They will be those reading disciplined behaviour before consensus forms.

"The escalator is moving," he says. "The only question is whether you are on it."

Meet The Managers 2026

Pedri Reyneke presents "The Escalator Theory" at Meet the Managers 2026, taking place in Johannesburg in June.

Reserve your seat at https://www.meetthemanagers.co.za.